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Just How Important Is Wal-Mart To China?
By Paul Midler | May 11, 2008
We read in the press about the importance of Wal-Mart’s relationship to China, and I thought it would be fun to run out some quick figures. Wal-Mart procurement in China has been flat at $9 billion over the last couple of years. Meanwhile, exports out of China have risen fast. In 2007, exports were up 25% to somewhere around $1.2 trillion. What is that, 0.75% of total exports? In general business terms, it is not a significant figure, and as a proportion it is shrinking over time. While Wal-Mart may be a significant customer to some individual suppliers, it is not nearly as significant to the economy as some might have you believe.
[Stepping away from the blog for a couple weeks, or will at least be blogging at low-impact levels…]
Topics: China |
May 11th, 2008 at 1:49 am
Oh, and here’s something else to consider when putting Wal-Mart in perspective. The EU is said to import $9 billion in t-shirts every year. Here’s the link…
http://findarticles.com/p/articles/mi_m0EIN/is_2008_Feb_21/ai_n24318589
May 11th, 2008 at 5:31 pm
The question here is whether this is merely stuff sourced directly from China under the Wal Mart house brand, or whether it includes brand name products like Nike, Hewlett Packard, Sony, etc, that are assembled in China.
May 11th, 2008 at 5:35 pm
Here’s an interesing snippet from a Pittsburgh paper about a Chinese product malfunction in the Middle East:
Three years and three months before Ryan Maseth stepped into a shower Jan. 2 in Baghdad, an Army safety specialist identified electrocution as a “killer of soldiers.”
Still, when the 24-year-old Shaler Green Beret turned on the faucet, water flowed from a pump powered by an improperly grounded electrical system manufactured in China. Borne on water, an electrical current surged through the pipes, out of the shower head and into his body.
His heart stopped.
May 11th, 2008 at 5:47 pm
We may also want to consider that some of what is procured by Wal-Mart in China is bound for its own stores in the same country.
In any case, Z.F., the $9 billion has remained flat, while exports out of China have soared.
May 11th, 2008 at 9:27 pm
The company I work for (we buy 100% from China factories) sells about 25% of our goods to Wal-Mart. They are by far our largest customer. 10 years ago only about 10% of our goods came from China (we owned factories in North America).
May 12th, 2008 at 6:17 am
When considering this subject, it is important to keep in mind that Wal-Mart direct imports only about 10% (or less) of goods sold in its stores in the U.S.
The remaining 90% or so is, like Yokie Kuma states above, originally importanted into the U.S. by third-party vendors, then sold to Wal-Mart.
So, although Wal-Mart procurement appears flat, that is highly misleading as an indicator of their real sourcing from China.
May 12th, 2008 at 6:31 am
Pesh - What you are suggesting, more or less, is that Wal-Mart may be getting out of the sourcing business. They want third-party vendors to handle more of their China business. That would be a VERY interesting trend, if it is in fact happening. Consider for a moment the implication for quality control. Would you trust a third-party vendor more than Wal-Mart to ensure product safety?
May 12th, 2008 at 6:51 am
By the way, the likelihood that Wal-Mart is sourcing 10 times more than $9 billion is low. How can Wal-Mart be pulling $90 billion out of China when total exports out of China are US$1.2 trillion in 2007? The U.S. takes roughly one-fifth of all China exports. The numbers don’t add up. Tell me if I’m wrong…
May 12th, 2008 at 9:26 pm
@Paul: WM likes to buy direct as their costs are lower. However, when you compare them against name-branded product, their effectiveness is much less. A name-brand company, typically, can control quality much better than WM can (it is their name that is being affected). However, smaller non-branded-goods are usually have lower quality as their importers don’t care (no name).
This is strictyl due to 1) who owns the name, and 2) their ability to focus on fewer factories and fewer goods, and 3) are experts in their products.
May 12th, 2008 at 9:52 pm
Wal-Mart has its own sourcing operation on the ground in China, and some might say that this qualifies them to monitor quality better than most. On the business of a branded company, what about Mattel? They had it in their best interest to protect their brand, and they were working closely with the one supplier for over fifteen years before they got burned. My understanding is that WM will allow an importer to source a non-branded product for the company and that they will take over once they figure out how to do it by themselves (to save $, as you suggest). That is the general direction that things move in anyway. If someone can prove that the trend is reversing, that would be interesting.